FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Oakar Transaction: Whether Deposits of Agency Offices Should Be
Treated as SAIF or BIF Insured Deposits After Transfer

FDIC--94--48

September 8, 1994

Valerie J. Best, Counsel

I was asked to review your letter dated July 12, 1994 to verify
that your interpretation of 12 U.S.C.
1815(d)(3) comports with advisory opinions previously issued by
the FDIC.

The July 12th letter transmitted to the FDIC an Application for
Merger or Other Transaction (the "Application"). The Application
seeks approval for the transfer of deposits of three agency offices of
XYZ Services ("XYZ"), to B Bank ("B"). The agency offices
involved (the "Agency Offices") are those whose deposits the
Federal Reserve Bank of St. Louis has required XYZ to divest itself of
as a condition to its approval of the merger of LMN Inc. ("LMN")
with and into C Bank. LMN is the sole shareholder of XYZ, C Bank is the
sole shareholder of ABC Association ("ABC").

As a part of the LMN integration into the ABC system, ABC has
applied to the Office of the Comptroller of the Currency for approval
of the merger of XYZ with and into ABC. Because MBSL is a member of the
Bank Insurance Fund ("BIF") and XYZ is a member of the Savings
Association Insurance Fund ("SAIF"), the transaction will be
consummated pursuant to 12 U.S.C. 1815(d)(3) (an "Oakar"
transaction). After the merger is consummated, the deposits of XYZ will
become deposits of ABC. It is my understanding that the deposits of the
Agency Offices will not be transferred to B until after the XYZ/ABC
merger has been consummated.

Since B is a BIF member, the question has arisen whether, upon
divestiture, the deposits of the Agency Offices should be treated as
SAIF-insured deposits or as BIF-insured deposits.

The FDIC has previously had occasion to consider the treatment, for
insurance fund purposes, of branch deposits divested pursuant to
regulatory order (letter dated 3--30--93, copy attached). In that
earlier case, we opined that the divested branch deposits should be
treated as SAIF-insured deposits. We believed that it could reasonably
be said that the Bank in that case was acting as a conduit for the
SAIF-member deposits--the Bank would not have been permitted to acquire
the branch deposits but for the timely resale of those deposits. Our
conclusion was based, in part, on the fact that the BIF-member Bank was
required to commit to divest the specified branches as a condition for
regulatory approval of the acquisition of the SAIF-member thrift; the
commitment was enforceable; the divestiture was required to occur
within six months after the initial acquisition was consummated,
otherwise the branches were required to be turned over to an
independent trustee for immediate
sale.1

The situation you describe falls squarely within the parameters of
the above-described case. You indicate, however, that our earlier
opinion appeared to give the selling institution the option
to treat the deposits as deposits which are insured by the SAIF,
rather than requiring the institution to treat the deposits
as deposits which are insured by the SAIF. Although it was not made
clear in our earlier letter, we did require the selling and buying
institutions in that case to treat the divested branch deposits as
deposits which are insured by the SAIF. You also reference advisory
opinions issued by the FDIC wherein we stated that, if the aggregate of
all deposits being transferred to BIF-member banks by a BIF-member
Oakar bank will not reduce the Oakar bank's total deposit base below
the amount of its "adjusted attributable deposit amount" (the
"AADA"), the transfer of deposits would be a transfer of
BIF-insured deposits and, therefore, would not be regarded as a
conversion transaction.
FDIC--92--80;
FDIC--90--22; letter dated
8--23--90. Those cases can be readily distinguished from your situation
in that the institutions involved were not required to divest the
subject funds as a condition for regulatory approval of the initial
acquisition. Consistent with our earlier interpretation, the deposits
of the Agency Offices should be treated as deposits which are insured
by the SAIF.

Our interpretation in this case should not impede the divestiture of
the deposits. Subject to the necessary regulatory approvals, the
acquiring party has the option of acquiring the Agency Offices pursuant
to Oakar (12 U.S.C. 1815(d)(3))--thereby avoiding exit/entrance
fees--or pursuant to a conversion transaction (12 U.S.C.
1815(d)(2)(A)--(F))--thereby converting the deposits from SAIF to BIF.

We appreciate your cooperation in this matter. I apologize for any
misunderstanding I may have caused you during our earlier telephone
conversations concerning Oakar
transactions.

1Prior to 1992, a divestiture intended to meet objections under
the antitrust laws was generally required to take place on or before
the date of consummation of the acquisition (e.g., Barnett Banks
of Florida, Inc., 68 Fed. Res. Bulletin 190 (1982);
Interfirst Corporation, 68 Fed. Res. Bulletin 243
(1982). However, under a change in policy that was formalized in August
of 1992, the Federal Reserve Board determined that applicants may be
given up to six months after consummation to complete a divestiture
provided that, prior to consummation, the applicant entered into a
binding agreement with another party to acquire the relevant offices.
If the divestiture is not accomplished within this time frame, the
branches to be divested must be placed with an independent trustee for
immediatesale. Federal Reserve Press Release with
"Invitation for Comment," issued August 25, 1992, pg. 18--19.
This change in policy reflected a change in the Board's position on the
timing of divestitures in a series of Board Orders: First Union
Corporation, 76 Fed. Res. Bulletin 83, 85 (1989);
United New Mexico Financial Corporation, 77 Fed. Res.
Bulletin 484, 485 (1991); BankAmerica Corporation, 78
Fed. Res. Bulletin 338, 340 (1992). Go back to Text